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Took a 401k Loan before filing Chp 7

Valued Member

Took a 401k Loan before filing Chp 7

Hello,

 

I'm interested in filing Chapter 7 bankruptcy on about 45,000 of unsecured debt. I am current on all of my bills and mortgage/ car payments, but have been juggling to pay them all.  I have already met with an attorney for a consultation and he stated I am under the income requirements for the Chapter 7 in Texas.

 

My concern is that I took out a 401K Loan in February of this year for $6,000 to try and pay off bills. I am making the payments through automatic payroll deductions, also I’m not allowed to not contribute to my 401K (1% contribution). I work for a very big bank.

 

My question is, does this $6,000 deposit count towards my income since it was in the last 6 months? I would think it does and might make me closer to the limit and I would have to do the means test. Also what about Financial Aid payments from Pell grants, do those count as income well? I received $1,100 in January this year.

 

Thanks for any help you can provide.

Message 1 of 20
19 REPLIES
Established Contributor

Re: Took a 401k Loan before filing Chp 7


marie1981 wrote:

Hello,

 

I'm interested in filing Chapter 7 bankruptcy on about 45,000 of unsecured debt. I am current on all of my bills and mortgage/ car payments, but have been juggling to pay them all.  I have already met with an attorney for a consultation and he stated I am under the income requirements for the Chapter 7 in Texas.

 

My concern is that I took out a 401K Loan in February of this year for $6,000 to try and pay off bills. I am making the payments through automatic payroll deductions, also I’m not allowed to not contribute to my 401K (1% contribution). I work for a very big bank.

 

My question is, does this $6,000 deposit count towards my income since it was in the last 6 months? I would think it does and might make me closer to the limit and I would have to do the means test. Also what about Financial Aid payments from Pell grants, do those count as income well? I received $1,100 in January this year.

 

Thanks for any help you can provide.


The loan is not income because you are expected to pay it back; had you taken a distribution that would be another story.  Pell grants on the other hand are regular taxable income.

 

Good Luck!

Message 2 of 20
Valued Member

Re: Took a 401k Loan before filing Chp 7

Thanks for your insight!


TygerHawke wrote:

marie1981 wrote:

Hello,

 

I'm interested in filing Chapter 7 bankruptcy on about 45,000 of unsecured debt. I am current on all of my bills and mortgage/ car payments, but have been juggling to pay them all.  I have already met with an attorney for a consultation and he stated I am under the income requirements for the Chapter 7 in Texas.

 

My concern is that I took out a 401K Loan in February of this year for $6,000 to try and pay off bills. I am making the payments through automatic payroll deductions, also I’m not allowed to not contribute to my 401K (1% contribution). I work for a very big bank.

 

My question is, does this $6,000 deposit count towards my income since it was in the last 6 months? I would think it does and might make me closer to the limit and I would have to do the means test. Also what about Financial Aid payments from Pell grants, do those count as income well? I received $1,100 in January this year.

 

Thanks for any help you can provide.


The loan is not income because you are expected to pay it back; had you taken a distribution that would be another story.  Pell grants on the other hand are regular taxable income.

 

Good Luck!


 

Message 3 of 20
Frequent Contributor

Re: Took a 401k Loan before filing Chp 7


marie1981 wrote:

Hello,

 

I'm interested in filing Chapter 7 bankruptcy on about 45,000 of unsecured debt. I am current on all of my bills and mortgage/ car payments, but have been juggling to pay them all.  I have already met with an attorney for a consultation and he stated I am under the income requirements for the Chapter 7 in Texas.

 

My concern is that I took out a 401K Loan in February of this year for $6,000 to try and pay off bills. I am making the payments through automatic payroll deductions, also I’m not allowed to not contribute to my 401K (1% contribution). I work for a very big bank.

 

My question is, does this $6,000 deposit count towards my income since it was in the last 6 months? I would think it does and might make me closer to the limit and I would have to do the means test. Also what about Financial Aid payments from Pell grants, do those count as income well? I received $1,100 in January this year.

 

Thanks for any help you can provide.


Why not?

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In second year post 13 DC (12-28-15)
Entered garden 05-19-2017 CLOSED ON MY NEW HOUSE 5/17/17!!!!

Message 4 of 20
Valued Member

Re: Took a 401k Loan before filing Chp 7

When I first got hired I had 31 days to opt out of retirement savings and I never did. That was 15 years ago. Now if i try to remove it, I dont have the option, the only option is minimum 1%. It's prob user error, I need to call HR and see how. 😊
Message 5 of 20
Regular Contributor

Re: Took a 401k Loan before filing Chp 7

Some 401K plans do not allow contributions if there is an outstanding 401K loan.  That could be the reason marie1981 is not allowed to contribute.

Gardening since 05/08/17--
FILED CH7 BK 02/25/13 -- DISCHARGED 06/10/13
EQ474 EX538 TU503 06/10/13 Starting Scores
Message 6 of 20
Frequent Contributor

Re: Took a 401k Loan before filing Chp 7


srloring13 wrote:

Some 401K plans do not allow contributions if there is an outstanding 401K loan.  That could be the reason marie1981 is not allowed to contribute.


That would suck.  Hell the amount I contribute any small amount I owe, I could pay back the loan in a couple of months if that were the case.

align="right">
In second year post 13 DC (12-28-15)
Entered garden 05-19-2017 CLOSED ON MY NEW HOUSE 5/17/17!!!!

Message 7 of 20
Established Contributor

Re: Took a 401k Loan before filing Chp 7

At some (I don't know about all)  filing for bk is automatic termination.   The first Mrs, Backwoods was a Manager for Big Bank  and fired some one for this. This may have changed as the first Mrs. Bankwoods and I have not spoken in over 20 years.  The bank said  they were a risk.  Be careful 

Message 8 of 20
Frequent Contributor

Re: Took a 401k Loan before filing Chp 7


Backwoods wrote:

At some (I don't know about all)  filing for bk is automatic termination.   The first Mrs, Backwoods was a Manager for Big Bank  and fired some one for this. This may have changed as the first Mrs. Bankwoods and I have not spoken in over 20 years.  The bank said  they were a risk.  Be careful 


This is generally the case when one works for any job that is financial and handles sensitive information e.g. customers SSN access etc.  I thought I might not get an offer once for a job because of my BK13 and the company I had applied for (which handled retirement funds/plans). 

align="right">
In second year post 13 DC (12-28-15)
Entered garden 05-19-2017 CLOSED ON MY NEW HOUSE 5/17/17!!!!

Message 9 of 20
Valued Member

Re: Took a 401k Loan before filing Chp 7

So does this law below not apply? I work for a large bank but I don't do anything with customers or their information. I work in computer systems.

Section 525 of the Bankruptcy Code (11 U.S.C. 525) states:

(b) No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt--

(1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act;
(2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or
(3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.
Message 10 of 20